The big news this morning is that the Federal Reserve Board moved to lower the federal funds rate overnight by ½%. Five other central banks around the world also lowered key lending rates in a concerted effort to loosen up lending and pump money into the banking system.
Of course, we’ve all heard about the $700 billion program, passed by Congress last week, to “bail out” US banks. The purpose of this legislation is to allow the federal government to purchase problem assets from banks to add liquidity to the banking system. One of the key things that happened to create the current problems in the US financial system is the lack of liquidity in the mortgage backed securities (MBS) market. Due to higher than normal foreclosure rates in mortgage portfolios investors have been unwilling to purchase new and existing MBS. Many banks have large portfolios of mortgages and MBS and the frozen market for these assets has forced banks to have to write-down the value of these assets. These write-downs have created huge paper losses and that combined with banks inability to sell mortgage assets has created a contraction in lending and a liquidity problem at banks – they simply don’t have enough cash to make loans and meet capital requirements.
This fed rate reduction combined with the government bailout plan and other recent moves are all reaching towards the same goal – to increase liquidity in banks and foster an environment in which banks can and will make more loans available to consumers and businesses and thus stabilize the financial systems and the overall economy.
I also wanted to let you know that we are still making loans, getting people approved and closing deals! I am working with a whole bunch of first time buyers right now who are seeing great opportunities in this market and you don’t have to have perfect credit and a 20% down payment to get in the door. The FHA loan is back and is filling in the gaps with loan amounts up to $297,500 (in Southeastern Michigan), credit scores as low as 580 and only 3% down. We still have great Jumbo ARM rates for people taking advantage of super deals in the luxury market. When you want to ensure that your Pre-Approved clients get to the closing table successfully just give them my card.
For all of us in the real estate and mortgage world, these are challenging times. However, it’s my opinion that when the smoke clears we are going to enjoy a great market with a lot less players in the field. It’s just a matter of keeping your chin up, your attitude positive and working hard. Be one of the survivors and I guarantee you’ll be glad you did!
Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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